Demonstrate that, in the case where the x(K) 0 linearly with strike, the implied volatility must
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Demonstrate that, in the case where the x(K) → 0 linearly with strike, the implied volatility must necessarily rise asymptotically to infinity.
On this basis, explain why any implied volatility surface which remains finite as K → 0 must always underprice puts for a positive expectation of a stock jump to zero.
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Related Book For
The Value Of Uncertainty Dealing With Risk In The Equity Derivatives Market
ISBN: 9781848167728,9781908979582
1st Edition
Authors: George Kaye
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